THE DOT - if this turns orange or red be alert

Thursday, December 30, 2010

We need the Jan/Feb to deliver a final test of the 80 level before the trade can take off. We are building a powerful low in the 80 area -we need at least one weekly new low close below 80 to make the low finally ( probably even two ) - still a retest of the old record low at 79.75 is due. Most likely end of Jan 1st week of Feb. before the short can start to run as we also need some already existing shorts to be stopped out or capitulate. Target is 100 /02 area a break above that suggest much higher levels as we came down from 145 in 1998 the potential is much bigger but on the other hand its hard to see a Dollar strength from a fundamental point of view only a war in Asia could explain such a move.

1. Here an excellent fundamental background story mostly why stocks are poised to drop ( that is my assumption combing all sentiment, technical and astro data) starting in Jan 2011. Usually todays data would have produced a 1%rally at least but as it is the Mercury retrogade day again things are weird but year end makes it special anyway.

excerpt

It's been quite a Santa Rally.

The stock market has gained about 10% this quarter. That's the best fourth-quarter performance since 2003 and the seventh-best in thirty years. Wall Street is cheering. The shops had a good Christmas. The economy may be perking up. Investors are feeling cheerful again, and strategists are predicting a happy new year for equities.

Two words: Bah, humbug.

I can't cheer this Santa Rally. Call me Scrooge. But I'll give you ten reasons why not -- and they don't even mention the dismal economy.

1. Shares may be more expensive than they're telling you. Wall Street says the market is still reasonably priced, at about 14 times forecast earnings. But two other measures tell a different story. The "Cyclically-Adjusted Price-to-Earnings Ratio" compares share prices to average earnings for the last ten years, not just for one year. And a measure called "Tobin's q" compares share prices to the cost of replacing company assets. These may seem off-the-wall measures, but for more than a century they have proven very good guides for long-term investors. Right now both say the market is about 75% above its average value: Not a bubble, but expensive. These don't mean the market will tank. But they do suggest your long-term returns from here may be modest.

2. Bargains are hard to find. Value investors are gasping for air. Looking for stocks below, say, 16 times likely earnings, and with a dividend yield of more than 3%? Good luck. Once you weed out shares of companies on life support or those with meager interest cover, you're left with a smattering of decent-sized names - mostly drug companies and utilities, plus a handful of others such as Chevron and Kraft. In a market that's reasonably priced, you typically find lots of stocks on the bargain rack. Not here.

3. Is that really it? The stock market is now where it was before Lehman Brothers collapsed. And if you exclude financial stocks, the market value of U.S. equities is now within about 15% of the October, 2007, peak. To believe that (non-financial) stocks are reasonably valued today implies that they were pretty reasonable then, at the peak of the bubble - and that therefore most of the last three years was little more than a bad dream. Do you believe that? Do I?

4. The dividend yield is dismal. As the market has rallied, the yield has tumbled. Today it's just 1.7%, very low indeed by historic standards. David Rosenberg at Gluskin Sheff says the long-term average has been about 4.4%. Of course, dividends aren't the only way for investors to make money: Stock buybacks and growth can also generate returns. But dividends have historically been a key driver of investment profits, and the current level is paltry.

5. Corporate debts are far larger than people realize. Wall Street is selling a story that corporate balance sheets are in great shape and U.S. companies are simply awash with spare money. It's misleading. Some companies, naturally, are fine. But overall, corporate debts have been rising, not falling. Federal Reserve data show non-financial corporations owed $7.4 trillion at the end of the third quarter - an increase of $250 billion in a year, and a new record. As recently as 2005 the figure was just $5.5 trillion. The Fed says nonfinancial corporations now have debts equal to 58% of their net worth - compared to just 41% five years ago. And when you add these debts to the value of equities, the so-called "enterprise value" of public companies is now about 2.2 times annual sales, according to FactSet. That's an extreme level - far higher than in 2006 or 2007, and exceeded only by the madness of 1999-2000.

6. Systemic leverage is through the roof as well. After three years of alleged "deleveraging," U.S. households have managed to slash their enormous mortgage and other debt burdens by all of… 3.5%. Meanwhile government and corporations have borrowed much more. Net result? Total debts have risen 15% since the fall of 2007 to $36 trillion. Maybe this is okay, maybe it isn't. There are brilliant economists on both sides. But more leverage means more risk. That's economics 101. Yet here we are, the market is booming, and everyone seems to think everything is just hunky-dory.

7. Money managers too bullish. Global money managers are taking an upbeat view of stocks and the economy, and 40% are already overweight stocks in their portfolios, according to the latest survey by Bank of America/Merrill Lynch. And these money managers aren't holding much cash in reserve: Just 3.5% of the average portfolio, a very low level. Even hedge fund managers, those skeptical souls who are supposed to puncture any market euphoria, are dangerously cheerful. Hedge fund managers have turned "extremely bullish on U.S. equities," according to the latest TrimTabs/BarclaysHedge survey. Yikes. According to Bank of America, hedge funds are already heavily betting on a rising market - oh, and their leverage is now at "the highest level reported since March 2008."

8. So is everyone else. An astonishing 63% of retail investors are now bullish, says the latest survey by the American Association of Individual Investors. That's an extreme level. Just 16% are bears - half the long-term average. And the weekly survey by Investors Intelligence shows advisors are now more bullish than at any time since the peak in October, 2007. Strategists polled by Barron's, our sister magazine, earlier this month predicted a hefty 10% stock market gain next year. Media sentiment is very bullish: Take a look at the stories looking ahead to 2011. Sorry, folks, but all this is bearish. The time to buy stocks is when everyone hates them.

9. Too many people I trust are cautious. Sure, you can hear lots of Wall Street strategists talking up the market, just as you can hear lots of Chrysler salesmen talking up Chrysler cars. But I can remember Wall Street strategists telling us it was a great time to buy stocks back in 2000 - just before the worst decade in memory. The people who have been right over the past decade are mostly still gloomy. That includes Mr. Rosenberg at Gluskin Sheff, and Albert Edwards at S.G. Securities. It includes John Hussman at Hussman Funds, who calls this a terrible moments in which to invest in stocks. And it includes Jeremy Grantham at GMO. While he still likes high quality blue chip names and emerging markets, his latest analysis suggests that large cap U.S. stocks are unlikely to beat inflation by much over the next seven years, while small caps will actually lose value.

10. A Santa Rally doesn't mean a happy New Year. The market has risen 10% this quarter. So what? It did the same before Christmas, 2001 - then crashed in 2002. We had an 8% Christmas rally in 2002, followed by a nearly 4% slump. And after a 9% gain in the fourth quarter of 2004, the market dropped 3% in the next three months. Are strong Santa rallies usually followed by strong starts to the New Year? Not really. I checked the data from the last thirty years, and shares rose by just under 2% in the average first quarter. On the 16 occasions when it followed a Christmas rally of more than 5%, the average first-quarter gain was just over 2%. Like I said: Bah, humbug.

Saudi Arabia has jumped ahead of Iran by obtaining the use of two Pakistani nuclear bombs or guided missile warheads. DEBKAfile's Gulf sources believe the weapons are ready for delivery upon royal summons in Pakistan's nuclear air base at Kamra in the northern district of Attock. Already delivered is a quantity of Pakistan's Ghauri-II missile with an extended range of 2,300 kilometers. They are tucked away in silos in the underground city of Al-Sulaiyil, south of the capital Riyadh.

2 Another sign that a big top is very close as the DOW also produced a weekly and daily 13 yesterday but the weekly does require that yesterdays close is valid by Friday ( or higher of course). Its time to get very cautious to the say the least. My target remains 11800 still but we almost have that anyway.

NYSE Short Interest Drops To Lowest In 2010

According to the just released NYSE short interest update, the number of shares short on the NYSE group has just dropped to 2010 lows, after dropping by over 1 billion since the August highs. This has occurred pretty much in linear fashion: in the last 4 months, there has been just one two week period in which the shorts have increased. What is just delightfully ironic, is that even as broad market volume has collapsed, biweekly short covering has surged on a relative basis. In essence, the bulk of the market buying has been short covering, which traditionally is always 'offer-lifting' heavy, as shorts are willing to pay any price to cover underwater positions, especially if there is an accelerant involved, such as when a repo desk advises its "client" that State Street has decided to force squeeze financial stocks for the nth time since March 2009.

The chart below shows that after standing firm through the end of September, shorts have capitulated and the bulk of the weak hands has by now been washed out.

The second chart shows the near relentless covering in biweekly short positions:

2 Another sign that a big top is very close as the DOW also produced a weekly and daily 13 yesterday but the weekly does require that yesterdays close is valid by Friday ( or higher of course). Its time to get very cautious to the say the least.

NYSE Short Interest Drops To Lowest In 2010

According to the just released NYSE short interest update, the number of shares short on the NYSE group has just dropped to 2010 lows, after dropping by over 1 billion since the August highs. This has occurred pretty much in linear fashion: in the last 4 months, there has been just one two week period in which the shorts have increased. What is just delightfully ironic, is that even as broad market volume has collapsed, biweekly short covering has surged on a relative basis. In essence, the bulk of the market buying has been short covering, which traditionally is always 'offer-lifting' heavy, as shorts are willing to pay any price to cover underwater positions, especially if there is an accelerant involved, such as when a repo desk advises its "client" that State Street has decided to force squeeze financial stocks for the nth time since March 2009.

The chart below shows that after standing firm through the end of September, shorts have capitulated and the bulk of the weak hands has by now been washed out.

The second chart shows the near relentless covering in biweekly short positions:

Tuesday, December 28, 2010

Check out the price action in the left corner ( this is a log scale chart) which is the time frame from 1900-10. So far 100 years later we have made almost exactly the same price swings only its all 1 year later hence we should get a 25% downswing in 2011 which is very likely from many angles. Especially now as the bond markets have entered a major downtrend and very soon trigger a sell of in stocks as well as I had written about a few times. The scary part is rather the yearly MACD and the fact that now major downturn ever ended without hitting a PE level of 7 - the low of 2009 was around 14. Still the parallel to the last century is very intriguing but the overall situation is much worse as the whole world s about to be bankrupt never before in modern civilization so much debt has been accumulated not accounting for the liabilities in the social security systems which are even worse. As soon as the baby boomers hit retirement age in about 10 years the countries will be broke officially.

Check out the price action in the left corner which is the time frame from 1900-10. So far 100 years later we have made almost exactly the same price swings only its all 1 year later hence we should get a 25% downswing in 2011 which is very likely from many angles. Especially now as the bond markets have entered a major downtrend and very soon trigger a sell of in stocks as well as I had written about a few times. The scary part is rather the yearly MACD and the fact that now major downturn ever ended without hitting a PE level of 7 - the low of 2009 was around 14. Still the parallel to the last century is very intriguing but the overall situation is much worse as the whole world s about to be bankrupt never before in modern civilization so much debt has been accumulated not accounting for the liabilities in the social security systems which are even worse. As soon as the baby boomers hit retirement age in about 10 years the countries will be broke officially.

1. I was dead wrong on the Kindle I have to admit as I assumed the IPAD would be a Kindle killer - but the affluent US consumer loves his gadgets and he wants them all. Probably the new kid and teen generation never enough toys they can own to be hip or cool.

Amazon this week said the latest version of its Kindle e-reader has been its best-selling ever, while "many" buyers also own a touchscreen tablet like Apple's iPad.

In a press release this week, Amazon said that the third-generation Kindle is now the best-selling product in the online retailer's history. The Kindle surpassed the book "Harry Potter and the Deathly Hallows" to take the top spot.

2. As Mars is about making an exact square to Saturn tomorrow markets are doing a sideways consolidation but we still will have to make weekly 13s for the DOW and NDX and therefor need new highs after Wednesday til first week Jan it will happen. Some may have heard about Gann one of the master traders of the last century who claimed all knowledge can be gained from the bible when it comes to timing said that all 100 years things repeat- well 101 years ago we had a crash very similar to our recent one in DOW terms. 1907 we had a crash of roughly 50% followed by 2 strong years with also almost the same upside performance as we had now. 1910 the market went down 25% in a definite down year. Our crash was 2008 and therefore the down-year should be 2011 this time with the same magnitude. Later today I will put up a yearly 110 year DOW chart so you can see for yourself.

Monday, December 27, 2010

1. Interesting week ahead but the outcome is still fixed - it will be up - still in between we will have a bit downside as well with Mars squaring Saturn on the 29th and Mercury going stationary on the 30th but all overlayed with a huge layer of a very benign but final Jupiter/ Uranus conjunction. The T-Square effect of the Lunar eclipse will start to kick fully in once we enter the new year. Get ready for a very volatile Jan which should be a down-month after all the FED manipulation and Wallstreet sucking in undeserved bonus pays on pony stock levels the tide will turn. Bullish sentiment has reached extremes and some traders are just waiting to hit the market bids in Jan use the final upticks this to get rid of longs with Jan 4th being the top very likely.

excerpt 1

MONDAY, DECEMBER 27, 2010

INVESTOR SENTIMENT READINGS

High bullish readings in the Consensus stock index or in the Market Vane stock index usually are signs of Market tops; low ones, market bottoms.

Last Week

2 Weeks Ago.

3 Weeks Ago

Consensus Index

Consensus Bullish Sentiment

68%

60%

59%

Source: Consensus Inc., P.O. Box 520526,Independence, Mo.

Historical data available at (800) 383-1441. editor@consensus-inc.com

AAII Index

Bullish

63.3%

50.2%

53.1%

Bearish

16.4

27.2

22.6

Neutral

20.3

22.6

24.4

Source: American Association of Individual Investors,

625 N. Michigan Ave., Chicago, Ill. 60611 (312) 280-0170.

Market Vane

Bullish Consensus

60%

59%

58%

Source: Market Vane, P.O. Box 90490,

Pasadena, CA 91109 (626) 395-7436.

FC Market Sentiment

Indicator

55.2%

55.0%

55.5%

Source: First Coverage 260 Franklin St., Suite 900

Boston, MA 02110-3112 (617) 303-0180. info@firstcoverage.com

FC Market Sentiment is a proprietary indicator derived from actionable sell-side trade ideas sent by the sell-side to their buy-side clients over the First Coverage platform. Over 1,000 institutional sales people at more than 250 firms participate on the First Coverage platform and have contributed hundreds of thousands of ideas since inception. Each Idea is associated with a ticker or sector and is tagged bullish or bearish by the creator. This data is aggregated at the sector, industry and market level. The FC Market Sentiment score ranges from 0-100 (0=most bearish, 50=neutral, and 100=most bullish) and represents a completely objective, real-time view into what advice the sell-side is providing to their buy-side clients

The Details Of The CitiFX Contrary Call For A Watershed Bear-Market 2011

The report making the rounds today comes from CitiFX' Technical group which goes against the Wall Street conventional wisdom and instead of a 1,550 on the S&P forecasted by discredited permabull David Bianco, expects to see the market drop 16% by the end of next year. The punchline is that "the peak may be posted as early as the opening days of January 2011 (possibly even 3rd January as per the other 3 examples) with a down month in the region of 5%." And if a down 5% January is not enough, the firm believes that based on historical precedent, we will also see a 20% intrayear drop, and close the year 16% down. The catalysts: i) The bond market falling sharply as it did in 1977 sending yields higher and fueling inflation or supply fears or both, and ii) Europe imploding. While this could stress our view on the dollar fixed income and commodities, this dynamic still supports our bearish equity view. The report's conclusion may prove to be very prescient: "Happy holidays, get some rest. You may need it." On the other hand, with the Fed now practically solely responsible for risk asset pricing, we would not be surprised to see the Dow end 2011 at 36,000.... of course as gas hits $36/gallon, but that's irrelevant. Wealth effect forever!

Citi's two catalysts:

The bond market falling sharply as it did in 1977 sending yields higher and fuelling inflation or supply fears or both.

Europe imploding. While this could stress our view on the dollar fixed income and commodities, this dynamic still supports our bearish equity view.

Incidentally, one of these (Europe) is precisely what Scott Minerd called for in his outlook for the next 12 months. It is the lack of the other, which goes hand in hand, in Guggenheim's forecast, that made us have a little fun at Scott's expense.

Incidentally, this is the same Tom Fitzpatrick who in August 2007called for a 1987-type sell off in 2008, and uttered the following prophetic phrase: "without the Bernanke PUT we may have to entertain the idea of the Bernanke crash." Well, Tom was spot on with his call... and got way more than he bargained for.

For the full report open the link above - crucial to see

2. Another record sentiment report after the Investor Intel report from yesterday

excerpt

Difference Between AAII Bullish And Bearish Sentiment Highest Since 2004